- The FCA has launched a review of claims management companies.
- Some firms reportedly charged up to 33 per cent of compensation payouts.
- More than 800 misleading adverts have already been removed or amended.
The UK’s financial regulators are tightening scrutiny of claims management companies accused of aggressively targeting victims of the country’s growing car finance scandal, amid concerns that some consumers may be losing large portions of their compensation payouts unnecessarily.
Financial Conduct Authority said it has launched a formal review of the claims management sector after identifying practices including misleading advertising, aggressive marketing tactics and unfair exit fees.
The move comes as millions of motorists are expected to receive compensation linked to the long-running motor finance scandal, where borrowers were allegedly overcharged on car loans because of hidden commission arrangements between lenders and car dealers between 2007 and 2024.
Claims management companies, often known as CMCs, have rapidly moved into the sector as potential payouts increase. Some firms reportedly charge fees worth up to 33 per cent of compensation settlements despite the regulator’s own claims process being free for consumers.
The FCA said it is also investigating cases where consumers were allegedly signed up without clear permission or simultaneously approached by multiple firms, creating confusion and potentially delaying payouts.
A crackdown on misleading compensation claims
The regulator’s concerns extend beyond car finance alone. Officials said similar issues are appearing across other compensation sectors, including housing disrepair claims.
Alison Walters, director of consumer finance at the FCA, said claims firms can play an important role in helping people access compensation, but warned that poor practices are increasingly undermining consumer trust, as quoted in a news report.
The regulator has already started taking action alongside the Advertising Standards Authority and the Information Commissioner's Office through a joint taskforce launched in March.
So far, the FCA says it has removed or amended around 800 misleading adverts and helped more than 28,000 consumers exit contracts without penalties. Three claims management companies also agreed to reduce their fees following regulatory intervention.
In one recent case, the FCA banned an advert that used edited and unauthorised footage of consumer finance expert Martin Lewis. Regulators said the advertisement claimed consumers would receive average compensation of £1,846 without properly explaining how the figure had been calculated.
A sector still carrying the legacy of PPI
The UK’s claims management industry expanded rapidly following the payment protection insurance, or PPI, scandal more than a decade ago. Mass compensation payouts helped turn the sector into a multibillion-pound business.
According to estimates from the National Audit Office, claims firms generated between £3.8bn and £5bn from PPI-related claims between 2011 and 2015 alone.
That growth also attracted criticism from banks and regulators, who argued that some firms were filing poor-quality or speculative claims simply to generate fees.
The FCA first imposed a 20 per cent commission cap on PPI claims in 2018 before extending broader regulation of the sector in 2019. By 2022, commission limits for non-PPI claims had been capped at 30 per cent.
Meanwhile, the Solicitors Regulation Authority, which oversees around 9,000 law firms across England and Wales, said it has opened more than 100 investigations linked to 76 firms involved in handling consumer claims.
Aileen Armstrong, a director at the SRA, said regulators remain concerned about practices that may not be acting in consumers’ best interests, reportedly said in a statement.
The latest crackdown reflects growing regulatory concern that another major compensation scandal may also be creating a new wave of questionable claims industry behaviour, just as millions of motorists prepare for potential payouts.
